State's bond rating takes another hit

A second bond rating agency has lowered Illinois’ credit rating because officials won’t come to grips with the state’s financial problems.

DOUG FINKE

A second bond rating agency has lowered Illinois’ credit rating because officials won’t come to grips with the state’s financial problems.

Fitch Ratings dropped the rating a step, from A-plus to A, which Fitch said “reflects the continuing unwillingness of the state of Illinois to take action to address its significant budgetary problems. The recently enacted FY 2011 budget does not begin to address the current operating gap, relying almost entirely on various forms of deficit financing to close the gap.”

When they approved the budget last month, lawmakers acknowledged the state would end the next budget year with about $6 billion in unpaid bills.

They also gave Gov. Pat Quinn extensive powers to shuffle money around in the budget to meet emergencies. And lawmakers allowed Quinn to borrow money from restricted state funds and authorized the state to borrow against money it will receive in the future from the national tobacco lawsuit settlement.

Still unresolved is how the state will make its $3.7 billion payment to the pension systems next year. Quinn still wants to borrow to make the payment, saying that is the least costly solution in the long run. While the plan passed in the House, it is still stalled in the Senate.

“The enacted budget continues to push solutions out to the future...,” Fitch said.

State officials also came in for criticism for a lack of foresight in dealing with the state’s fiscal matters.

“Illinois entered this economic cycle with little financial flexibility to handle a downturn,” the Fitch report noted. “It came out of the last recession relatively late and did not take actions to build its reserves or restructure its finances as its economy and the national economy grew over the five years leading into this recession.”

Fitch said the only solution proposed for the current budget was to further delay payments to vendors, school districts and others. Even in the face of declining revenue, Fitch noted, the state has “an aversion to broad based tax increases.”

Kelly Kraft, spokeswoman for Quinn’s budget office, said the downgrade was expected and will probably cost the state an extra quarter point on interest rates when it issues bonds. At the same time, she said the General Assembly’s decision to pass pension reforms this year “continues to place Illinois in a strong position to secure favorable rates for the state.”

Last week, Moody’s Investors Service also lowered the state’s bond rating by a step. It, too, said state officials have displayed a “chronic lack of political will” to address Illinois’ financial problems.